Building a passive income portfolio is not hard today. With many shares currently sporting high dividend yields, it’s easy to create an attractive income stream.
Here, I’m going to discuss how I’d build a five-stock income portfolio right now with UK shares. With this mix of stocks, I could potentially generate an average yield of over 6%.
A defensive holding
One of my first picks, if dividend income is my goal, would be National Grid. It’s the UK’s largest electricity transmission and distribution company.
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It offers a high yield (around 6%) and has a good track record when it comes to dividend increases.
What really appeals to me however, is the company’s ‘defensive’ attributes. Given that demand for electricity is typically quite stable, I’m not likely to suffer big capital losses in the future (although we can’t rule this out).
Overall, I think it could be a great core holding.
Regular dividend increases
National Grid isn’t the only defensive stock I’d go for. I’d also invest in consumer goods giant Unilever.
Now, the yield here isn’t that high. Currently, it’s about 3.8%. However, it’s a reliable dividend payer, having shelled out cash distributions for decades.
And it regularly increases its payout, so my dividends from this stock should grow over time.
A high yielder
To offset the lower yield from Unilever, I’d invest in insurer Legal & General. It currently sports a yield of about 9.2%.
But investors need to be careful with high yielders as a high yield can be a sign a dividend cut is on the horizon.
I don’t think that’s likely here however. Recently, the company hiked its H1 dividend by 5% and said it’s on track to achieve its five-year ambitions.
That said, insurance stocks can be volatile at times. So my investment here could fluctuate in value.
I think the stock is capable of providing decent returns over the long run though.
Well positioned for the future
A second high yielder I’d go for is HSBC. It’s forecast to pay out 62.2 cents in dividends for 2023, which translates to a yield of around 8.4% at present.
This is another stock that could be quite volatile. During periods of economic turbulence, bank shares can swing wildly.
I like the long-term growth story here though. In recent years, HSBC has been focusing its attention on higher-growth areas such as Asia and wealth management.
So I think it’s positioned well for the future.
Lowering my risk
Finally, I’d snap up some shares in GSK. It’s a pharma company that operates in two main areas – medicines and vaccines.
The yield here is currently around 4.2%. So it’s not the highest out there. However, analysts expect the dividend payout to grow in the years ahead.
And adding the stock to my portfolio could help lower my overall portfolio risk as the healthcare sector is quite defensive in nature.
A yield of 6.3%
With these five stocks, I could potentially generate a yield of around 6.3%. In other words, if I was to invest £2,000 in each, I’d be looking at passive income of around £630 a year. I could also be in line for some capital growth.
Owning just five stocks would be a little risky however. Therefore, I would aim to buy other shares over time for diversification.
